News

Employment Law: You May Be Personally Liable for Unpaid Wages

April 2, 2013

A recent Maryland high-court decision has expanded liability under the Maryland Wage Payment and Collection Law (“Wage Payment Act”) to individual officers, directors, stockholders and supervisors who exert sufficient control over the employment relationship.

In Campusano v. Lusitano Construction LLC, the Court of Special Appeals of Maryland discussed the “economic reality test”, which is historically used to determine individual liability under the federal Fair Labor Standards Act (“FLSA”), and applied it to cases brought under the Wage Payment Act. This test relies primarily on the following four factors: 1) whether the individual had the power to hire and fire employees; 2) whether the individual supervised and controlled the employee work schedules or conditions of employment; 3) whether the individual determined the rate of pay; and 4) whether the individual maintained employment records of the employee.

Generally speaking a corporate officer or individual with an ownership interest in a business may be considered an “employer” in his or her individual capacity for wage and hour law violation purposes if the individual has sufficient control of the financial affairs of the corporation, thereby, causing the entity to fail to pay its employees. However, the totality of the circumstances, and not any particular one of the four factors, are to be examined in determining such liability under the Wage Payment Act.

To be specific, this expanded definition of “employer” under the Wage Payment Act will cause officers, directors, stockholders and supervisors who have a high level of financial control over a company to be held individually liable for the failure of the company to pay its employees. The Wage Payment Act not only provides employer liability for unpaid wages, but if the court finds that the failure to pay wages is not the result of a bona fide dispute, the court may also award treble damages and attorneys’ fees to the employee – again with potential liability – for individual officers, directors, stockholders and supervisors.

Accordingly, employers must be careful to adhere to “best practices” with respect to the payment of wages. For example, we recommend that employers put employees on notice that they are required to immediately alert the human resources department if they believe that they have not been paid properly so that the problem can be resolved quickly. Similarly, we recommend that employers carefully draft commission plans to avoid any misunderstandings about when, exactly, commission is considered earned. Planning ahead with these and other protective measures reduce the likelihood of wage disputes.

For more information please contact Nicole Windsor at 410-583-2400 or windsor@bowie-jensen.com.